The quarterly earnings of the Finland-based Nokia Oyj (ADR) (NYSE:NOK) are likely to be boosted by a patent licensing deal the telecommunications gear maker made with Apple Inc. (NASDAQ:AAPL). This deal will offset the weak demand that Nokia has experienced in the mobile networks equipment business. Investors are however still nervous since Ericsson, a telecommunications giant based in Sweden, lowered its global network market forecast last week.
An analysts’ poll conducted by Reuters predicted that network sales at Nokia would fall by 3% in Q2 compared to the same period a year ago. Revenues from Nokia’s technologies unit under which patent royalties fall are, however, expected to increase by 40% after the agreement with Apple.
Consensus estimates also put Nokia’s operating profit in the second quarter as coming in $520 million which will be a rise of 35% compared to a year ago.
In recent years, vendors of network gear have struggled as a result of the peaking in demand of mobile broadband equipment for 4G technology. Meanwhile the updates that are required to herald 5G network technology are seen as being years away. Recent quarterly results have seen Nokia outpacing Ericsson and this is due to the acquisition of Alcatel-Lucent.
Earlier in April Nokia revealed that there was an improvement in business momentum. On the other hand, Ericsson forecast that the mobile network market would decline by high single-digit figures in 2017. The Sweden-based telecoms gear maker had earlier in the year forecast that the decline would be in the low single-digit figures.
“[Ericsson’s] results and revised outlook raise some concern for Nokia given previous expectations for some stabilization in the market,” Maynard Um, an analyst at Wells Fargo, wrote in a client note.
The deal between Apple and Nokia comes after the two tech firms settled a patent dispute two months ago. In the deal it was agreed that Apple would pay Nokia bigger patent royalties. Nokia would also supply mobile infrastructure gear to Apple. The two would also partner in the digital health business.
On Tuesday shares of Nokia Oyj fell by 1.12% to close the day at $6.16.